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Vendors have realised the importance of providing services with their products, not only in terms of generating extra margin, but for building customer relationships.

For vendors, the services market has become almost as crucial as it has to resellers. The provision of services with hardware products is seen as being vital to the customer, while the strategic importance of services stretches right across the platform market. In the systems business, Compaq is using the Digital services arm to underpin its attempts to turn itself into a global computer systems company. In the PC and server markets, Dell's alliances with Unisys and Wang are vital to the company, providing all the on-site warranty cover built into its pricing, and making services an additional revenue stream for Dell. Perhaps most important of all is the catalytic effect services have on product sales. The provision of service has become a part of the brand reputation. This is exactly why Hewlett Packard recently expanded its Authorised Support Provider Programme from just a handful of partners into a wider scheme, explains Bill Hill, general manager of small and medium business at HP in the UK. "We wanted to have a nationwide network of resellers that we could rely upon to deliver the brand quality of HP into the market," he says. Sun Microsystems runs a quarterly customer satisfaction survey that looks specifically at the level of contentment with the services resellers are delivering. It would be concerned if it saw levels dropping, says Sarah Fisher, marketing manager of enterprise services at Sun. More than 15 per cent of Sun's revenue is generated from services and the proportion is growing. As the systems market becomes more competitive, it is vital from the vendor point of view that resellers also expand their services business. It is a huge untapped opportunity, Fisher believes. "Resellers can generate extra revenue - long-term revenue. It is good margin business and it allows dealers to differentiate themselves and develop a relationship with the customer." HP also wants to encourage resellers to enter into the services market, says Hill. While HP has offered 'packaged' services for about eight years now in the UK that its partners can resell, the situation has changed. He explains: "Eight years ago resellers were marking reasonable margins on products and were not so keen on services. HP packaging the service made it easier for resellers, but that has changed now and the market has segmented. We recognise that with margins falling dramatically resellers have to move to new revenue streams and services activity." But the world is also changing for vendors. They are feeling the pinch as prices fall. The internet, ecommerce and the globalisation of corporate business is driving the need for IT services that can be delivered at a low price and with high quality worldwide. All this is driving the leading vendors - IBM, Compaq, HP, Fujitsu and Sun - further down the services route, as Dell's alliances illustrate. The global IT services market will be worth about $600bn by 2002, according to Compaq. It estimates that its hardware-related service opportunities alone will be worth as much as $100bn in revenue. Compaq plans to double its global service revenue to $15bn by the year 2002. But it will have a fight on its hands. Vendors can be expected to compete furiously for this valuable market. While there is going to be a percentage of business done direct, many vendors will use the channel to extend their reach into the services market. High-quality services are likely to have more influence on purchasing decisions, and high performance, reliability and value of products will be expected. What this means is that vendors such as Compaq will depend upon resellers to extend services to the customer and much of the time will even sub-contract services to resellers. By 2002, Compaq plans to dish out one third of its services business - it expects that figure to translate as $5bn to its partners. This is five times the amount of service business done by Compaq resellers at the moment. According to Michael Morgan, general manager of the partner management group at Compaq UK, taking the $100bn portion in isolation, there is enough room for everyone in the services market. "As the boundaries between vendor, service provider and consultancy blur, it is inevitable that such businesses will begin to compete. Compaq offers its customers many of the services available from system integrators, consultancies and third-party service providers, but not only can we do so globally, we also design and develop the technology working with customers to deliver a total IT package tailored to their needs." Jackson is not suggesting that Compaq is in the systems integration business here, merely playing the corporate line and trying to create the perception that all systems vendors want to create. He is saying global organisations can work directly with the vendor and that the vendor will be able to provide all the products and services they need. In addition, he is pointing out that Compaq's core business is products and that it can and will tailor these products to meet customer needs. Compaq, like IBM and HP, has to walk a careful line between making sure it presents an open door to the global customer, and showing resellers that it knows its place and will not encroach on their territory. There may still, however, be a grey area that lies between vendors and their partners - business that both will feel they have a right to claim in the upper reaches of the corporate market. Fisher says there are bound to be some areas of conflict from time to time, but this is something vendors and resellers must learn to live with. Like Jackson, she feels there is plenty of room for all the players in the services market and that the sector will sort itself out in the end. But her comments also give clues as to where conflicts could occur. "We have always allowed our partners to resell our services and that's easy enough when services have a definite start and end point. But there are other professional services, such as consultancy, that are harder to deliver. Professional services are all about intellectual property and once that is passed over, you can't take it away again. We are looking at ways of franchising those services now." That point made, there is no reason why resellers should not go ahead and develop their own services, Fisher adds. It requires investment, she points out, but can deliver long-term gains. "Some resellers are already ahead of the curve and are adding their own professional services. There is always going to be some potential for conflict but there is so much business out there that eventually it will find its own level." But in the end, the customer will decide who provides the services and whether this leads to disagreements between vendor and partner remains to be seen. However, it may not be a serious issue. Morgan and Fisher are probably right in saying there is enough business in the services market to keep everyone's appetite sated. "With a total estimated global IT services market worth $600bn, the market will be far from saturated. There is still plenty of room for EDS, Cap Gemini and so on, not to mention our many partners, to sell their services around Compaq products. Businesses that innovate in this sector and those with proven, preferably global, capability and experience can only continue to grow." THE KEY PLAYERS IBM GLOBAL SERVICES Increasingly, this is key profit-making area for IBM. The Global Services operation is strong in a number of areas and has much more of a pre-sales balance to its business than Compaq/Digital. Big Blue has a strong strategy and planning consulting business and is pushing its ebusiness capability hard at the moment. Strategically, this could be very shrewd because IBM is perhaps the only company that can offer the whole ecommerce package. Offering the consultancy and integration services as well could be of immense benefit if the company develops a lead in the ecommerce services sector. IBM appears to be ahead of its chief hardware rivals - Compaq and Hewlett Packard - in this sector. Sun Microsystems, though, is also strong on ecommerce. IBM also offers the standard menu of services that companies might receive from the professional systems consultants such as Sema and Cap Gemini - Business Performance Enhancement Consulting, Knowledge Management Consulting, disaster recovery, network integration and design. These related services also seed hardware sales, of course. Applications areas are also comprehensively covered - year 2000 and euro 'transformation', supply chain management and CRM are offered. IBM also has comprehensive systems management and maintenance services and outsourcing. HEWLETT PACKARD Hewlett Packard offers a services range that is not dissimilar to IBM's, covering the full lifecycle and trying to emphasise ecommerce as well. It also has an outsourcing arm and is focusing strongly, as many companies have in recent times, on ERP. Essential systems and supply chain are also areas it sells hard. Networking services and support are areas of real strength for HP, but right now outsourcing is perhaps the most vital area of the services business for the company. It is offering a wide range of services based on the HP IT Service Management Reference Model. Specifically in this area it offers outsourcing of ERP and applications management, network and system management, enterprise-wide desktop management and business recovery services. HP is also very keen on encouraging partners to sell its services. It is also pushing its capability of offering services online. The 'E-services-on-tap' initiative aims to offers service providers "bulletproof infrastructure capabilities over the net on a subscription or transaction basis". In this scenario, HP becomes the 'computing power plant', providing the back-end structure for service providers so they can focus on their customers. This power plant includes all the technology, management processes and global capabilities required for service providers to run and rapidly scale their businesses.